Five stocks that may win from Obamacare

Stocks tend to perform by sector, but there may be exceptions

LOS ANGELES (MarketWatch) — The major portions of President Barack Obama’s health-care overhaul bill won’t take effect until 2014, but in the coming year the medical industry will start to prepare for the onslaught of new policyholders scheduled to hit the system in little more than 12 months.

As the bill — formally known as the Affordable Care Act and popularly referred to as Obamacare — starts to kick in, investors should watch a number of stocks that could either sink or soar.

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The fortunes of insurers, care givers, device makers, drug distributors, pharmaceutical companies and biotechnology firms rest largely on which sector they occupy in the health-care spectrum. If they sink, chances are others in their sector will suffer as well unless mitigating factors help keep their shares humming.

The same goes for Obamacare winners; all boats in a particular sector are likely to be lifted if the rash of new policies smiles on them.

Analysts agree the biggest winners in Obamacare will be hospitals, followed by insurers and drug distributors/pharmacy benefit managers.

Medical-device makers, on the other hand, could suffer as a new tax imposed on them under the law threatens to eat into their bottom line. As more companies in the system become acclimated to the law, they likely will cut down on the use of health consultants and services groups.

Provisions of the law that affect drug makers and biotech labs already, for the most part, have been enacted — including taxes on some drugs coupled with higher reimbursements. Going forward, these two sectors should see a largely neutral effect, though there could be a net gain for some companies, analysts say.

But there are exceptions too. There are some medical-device makers which could cut a swath based on demand for their products. And some hospital companies could see their windfalls limited in states that opt out of Obamacare’s Medicaid expansion program.

One caveat: as with most legislative mandates, they can always be pushed back. Les Funtleyder, president of the investment advisory division at Poliwogg, a health-care investment specialist, says he wonders if states will be able to set up health-insurance exchanges by October 2013, or whether they’ll have to be delayed.

The exchanges are a critical cog in the new system, as they are expected to be used to add millions of new policyholders to insurers’ rolls.

“I think we’re going to have this conversation in the middle of 2014 and early 2015,” Funtleyder said.

Here’s a list of five prospective winners, once Obamacare is implemented:

1. HCA Holdings Inc.
HCA, +1.49%
: The largest hospital operator in the nation, HCA is in prime position to reap the rewards of Obamacare.

As more individuals become insured, hospitals stand to wipe billions of dollars in bad debt off their books that they have incurred for years by treating uncovered indigent patients in their emergency rooms. For some hospitals, it amounts to as much as 20% of revenue. “That should drop significantly by covering the uninsured as long as states go along with the Medicaid provisions,” said Jeff Jonas, an analyst with Gabelli & Co.

Due to its sheer size, HCA stands to gain more than most but it also is setting itself up to take advantage. The company operates 263 hospitals and surgery centers in 20 states. It also recently announced a secondary offering of shares, as a number of private investors are liquidating their stake in the company which has traversed in and out of the public market.

One note of caution, though. HCA has significant holdings in Texas, which has opted not to take part in the law’s Medicaid expansions. Seventy HCA facilities are listed in Texas. But Jonas says most states are likely accept the provisions. “It’s essentially free money for the first few years,” he said.

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